private company and pvt equity pvt, alt, important, private, company

HuskyGrad2010

What do you think are the most important topics in these two readings..private company(in equity) and private equity (in alt. assets)?

lucasg85

agreed, in Alt inv, private equity is all about the carried interest and all those bull$hit terms

liquidity

one thing I don't get about the carried interest; it seems to be only applicable if the investments' values (collectively of total, or respectively if deal by deal) clear the committed capital.

so for example, if I commit to give $100 million, and the GP only collects $50 million, and somehow, the value of that investment makes it all the up to $80 million ($30 million in unrealized gains). Does this mean the GP doesn't get any carried interest? Would that change if he got $30 million of realized investment return?

seems weird to me that the guy would get no money other than the management fees with such great returns, just cuz he didn't take all the money that was committed to him, but that one mock question seems to imply this, at least to me.

OmarAdnan

The GP only collects carried interest once the value of the fund exceeds the committed capital. So in magicskyfairy's example, he does not receive carried interest until after the fund surpasses 100 million.

The thought behind it is the J-curve return and that the GP should not earn "excess return" until he has returned all committed capital back to the fund.

scarecrow

ok, thx

senlinlang

what about hurdle rates? suppose in my example, it was 10%; lets suppose the NAV of the fund gets up to $109 million, that's shy of the 10% hurdle mark, so no carried interest.

what happens if it gets up to $111 mil? does the guy get carried interest of ... say it's 20%, so would it be 20% of 11 mil, or 20% of 1 mil that he gets?

jarobi04

If there is a hurdle rate, then yes, the GP must surpass the hurdle rate as well before collecting carried interest. The carried interest would only be on the return in excess of the hurdle rate. In your example it would be 200,000 (20% of 1 million).

yospaghetti

awesome, thanks